Key Issues for State Legislators This Week
This week, as state legislators head back to work, several important issues will be closely examined. One significant topic, which may not have garnered much attention given its technical nature, is the reform of pharmacy benefit managers (PBMs).
In fact, reform-minded leaders ought to collaborate with PBMs to harness their market strength to lower costs for consumers.
Last year, Arkansas broke ground by becoming the first state to ban PBMs completely, and other states are following suit, introducing stricter regulations in this field. These initiatives are anticipated to persist into 2026, despite ongoing legal scrutiny regarding the Arkansas legislation and similar Iowa regulations.
With my background as a healthcare broker, I’ve gathered extensive knowledge about PBMs. Their intricate workings, coupled with the pharmaceutical industry’s long-standing tendency to shift the pricing burden, make PBMs easy targets for criticism.
The fundamental function of PBMs is straightforward. They leverage their extensive reach to secure lower medication prices for hundreds of thousands, or even millions, of patients who lack the capability to negotiate directly with drug companies. When a significant player demands a lower price, manufacturers may find themselves forced to choose between profitability and retaining access to a vital customer base.
This negotiating power is critical, preventing pharmaceutical companies from setting medicine prices arbitrarily, whether for commonly used treatments like insulin or for newer medications such as Zepbound and Wegovy. Consider a company that pushes a “New Year’s gift” to consumers amidst widespread price hikes; the true impact on patient costs only becomes evident after PBMs have made their evaluations.
Navigating U.S. healthcare pricing can be perplexing. Terms like rebates, formularies, and spread pricing tend to confuse even seasoned observers. Critics often point fingers at PBMs for inflating administrative costs or saving excessively. Though some reservations are valid, the lack of transparency in the industry renders PBMs easy scapegoats for those claiming that patients are being denied necessary medications.
However, such criticism could be more appropriately directed at pharmaceutical companies. These companies often lament their inability to reduce prices due to high research and regulatory expenses. Yet, when Eli Lilly found itself out of the CVS network, it swiftly identified a way to reduce costs for its products.
In fact, on December 1, Eli Lilly decreased the consumer price of its weight-loss injection Zepbound, aligning it with the rival drug from Novo Nordisk. This development follows Novo Nordisk’s recent decision to cut prices for their own drug, Wegovy.
Clearly, CVS, through its PBM arm, attempted to negotiate with Lilly. Initially rebuffed by Lilly, CVS decided to no longer provide Zepbound to its clients. But with Novo Nordisk reducing its prices, Eli Lilly promptly altered its approach.
Lawmakers exploring ways to lower prescription drug costs should pay attention to these dynamics.
There’s no doubt that PBMs come with their share of issues, yet in this situation, we witnessed CVS driving necessary price adjustments. While advocating for greater transparency within PBMs, legislators need to approach these reforms thoughtfully and recognize the constitutional boundaries that govern these “reforms.” They must consider how over-regulation of PBMs impacts drug prices across states.
As lawmakers look for remedies to address soaring healthcare costs in the U.S., they must acknowledge that effective cost reduction requires collaboration with PBMs. Leaders focused on reform should explore how to harness the market influence of PBMs to drive down costs for consumers while demanding accountability and improved transparency from pharmaceutical companies.
